Scottish food groups oppose statutory grocery price cap

Twenty-three organisations representing food manufacturing, farming, retail, refrigeration, wholesaling, and logistics have urged the Scottish Government to abandon plans for a statutory cap on essential food prices, arguing that intervention at the shelf would not remove the costs accumulating further back through the supply chain.

The joint letter, published by the British Retail Consortium, was submitted to First Minister John Swinney on 27 August ahead of the Scottish Government’s Programme for Government. The signatories represent sectors that collectively employ around 300,000 people across Scotland.

Food and Drink Federation Scotland, Dairy UK, the Scottish Seafood Association, Scottish Bakers, the British Poultry Council, the Cold Chain Federation, the Federation of Bakers, Quality Meat Scotland, Salmon Scotland, GB Potatoes, the National Farmers Union of Scotland, Logistics UK, and several retail and wholesale groups are among the organisations backing the intervention.

The breadth of that list makes the dispute more than a conventional argument over supermarket margins. It places food factories, primary production, chilled distribution, packaging costs, and transport directly inside a policy intended to control what consumers pay for selected essential products.

The Scottish Government has not yet published a final mechanism. Its commitment is to develop a statutory cap on essential food items, with consultation intended to inform the detailed design and any subsequent legislation. Ministers have said proposals would be subject to parliamentary scrutiny and appropriate consideration of economic, competition, consumer, and business impacts.

That distinction is important for manufacturers because almost every material consequence depends on the eventual design. The effect of a cap would vary according to which products are included, which retailers are covered, how a permitted price is calculated, how often it can change, and whether the mechanism prevents cost pressure simply moving upstream.

The industry coalition argues that a cap would not address the underlying causes of food-price pressure. Its letter points specifically to production, refrigeration, and distribution costs, alongside fertiliser, fuel, energy, employment, and packaging expenses that feed through farming, manufacturing, cold storage, and transport.

Those are not interchangeable cost lines. Refrigeration is fundamental to dairy, meat, seafood, chilled food, and frozen production; process heat is essential across baking, cooking, sterilisation, and cleaning; packaging is both a material and compliance cost; and labour remains embedded through production, engineering, hygiene, warehousing, and logistics.

A retail price limit does not make any of those requirements disappear. If an input rises while the permitted selling price remains fixed, the difference has to be absorbed somewhere through retailer margin, supplier margin, specification, sourcing, promotional activity, pack architecture, or a combination of several measures.

That possibility explains why food manufacturers are concerned before the detail has been finalised. Supply agreements are commonly negotiated against assumptions covering ingredients, labour, energy, packaging, freight, volumes, and service levels. Those assumptions can change during the life of a contract, while the ability to alter retail prices may operate on a different timetable.

Recent IN Food analysis of manufacturing inflation has shown the same timing problem. Consumer food inflation can ease while factories remain exposed to costs locked into supply contracts, energy positions, packaging agreements, and freight arrangements that take longer to reset.

Smaller processors can be particularly exposed because they have fewer products and customers across which to spread an unexpected increase. A business operating short production runs, specialist chilled products, or ingredients tied closely to agricultural markets may have less scope to offset one cost movement with savings elsewhere.

The Scottish Government’s position is more qualified than a fixed-price scheme already awaiting implementation. In an answer to the Scottish Parliament on 26 August, ministers said international experience shows that different forms of price control can produce different outcomes depending on scheme design and market conditions.

The government said its consultation would seek evidence from consumers, retailers, producers, and other stakeholders on potential benefits, risks, and unintended consequences, including product availability, supply chains, and implementation.

Swinney had already acknowledged the producer issue directly when discussing the proposal at the Royal Highland Show in June. The First Minister said: “It cannot come at the expense of farmers, growers and producers who produce these items for us all.”

That leaves ministers with a difficult policy boundary. A scheme intended to improve affordability has to lower or restrain consumer prices without weakening the economics of the businesses expected to keep supplying the affected products.

Product availability is one obvious concern. If the commercial return on an individual product becomes unattractive, manufacturers and retailers have several potential responses before simply accepting a permanent loss. Pack sizes can change, specifications can be reviewed, promotional support can be altered, ranges can contract, or supply can shift towards a different source.

Those consequences would vary sharply by category. Bread, milk, meat, fresh produce, and other possible essentials have different production economics, shelf lives, levels of import exposure, and raw-material volatility. A mechanism workable for one category would not automatically translate neatly into another.

Domestic sourcing adds another complication. Swinney has said the government wants policy to support Scottish agriculture and food production, while ministers are separately developing a Public Sector Food Procurement Taskforce intended to increase the use of locally produced food and drink.

A price-cap system would therefore have to avoid creating an unintended incentive to replace Scottish supply with lower-cost imports where domestic producers carry higher labour, welfare, environmental, or processing costs. That risk is one of the areas the government says it intends to consider rather than an outcome that can yet be assumed.

The impact on factory investment also deserves attention. Food manufacturers are being asked simultaneously to improve productivity, automate production, change packaging, reduce emissions, strengthen traceability, and manage higher regulatory requirements. Those projects require capital and, in many cases, confidence that additional operating costs can eventually be recovered through the market.

None of that demonstrates that a statutory price cap cannot work. The final proposal does not yet exist in enough detail to make that judgement. It does explain why the manufacturing sector is pushing for its cost base to be considered before a mechanism designed around retail affordability reaches legislation.

The consultation will be the point at which those arguments have to become more specific. Manufacturers will need evidence showing where costs arise, how quickly they move, and what happens commercially when a retail ceiling prevents part of that movement being passed through.

For ministers, the corresponding challenge is to show how a cap can reduce household pressure without producing shortages, weakening domestic suppliers, or displacing costs into parts of the chain that have less ability to absorb them.

The 23 organisations have put that conflict onto the agenda before the statutory design is fixed. The next stage will determine whether the policy can reconcile affordable essential food with the less negotiable arithmetic of producing, refrigerating, packing, and distributing it.